SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarter ended September 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission File Number 000-29829
PACIFIC FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
Washington 91-1815009
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
300 East Market Street
Aberdeen, Washington 98520-5244
(360) 533-8870
(Address, including zip code, and telephone number,
including area code, of Registrant's principal executive offices)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days:
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Title of Class Outstanding at October 31, 2000
-------------- -------------------------------
Common Stock, par value $1.00 per share 2,500,350 shares
1
<PAGE>
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION 3
ITEM 1. FINANCIAL STATEMENTS 3
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2000 AND DECEMBER 31, 1999 3
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 2000
AND 1999 4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTH PERIODS ENDED SEPTEMBER 30, 2000 AND 1999 5
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
NINE MONTH PERIODS ENDED SEPTEMBER 30, 2000 AND 1999 7
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 11
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK 14
PART II OTHER INFORMATION 15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 15
SIGNATURES 16
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets
(Dollars in Thousands)
Pacific Financial Corporation
September 30, 2000 and December 31, 1999
<TABLE>
(Unaudited) September 30, December 31,
2000 1999
ASSETS
<S> <C> <C>
Cash and due from banks $8,096 $13,080
Interest bearing balances with banks 3,194 1,744
Federal funds sold 645 -0-
Investment securities available for sale 59,512 65,625
Investment securities held-to-maturity 1,457 1,615
Loans 175,449 152,664
Allowance for credit losses 2,144 1,930
------- -------
Loans, net 173,305 150,734
Premises and equipment 4,101 3,510
Foreclosed real estate 26 177
Accrued interest receivable 2,324 2,004
Cash surrender value of life insurance 2,422 2,330
Other assets 1,160 1,370
------- -------
Total assets $256,242 $242,189
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest bearing $38,219 $34,359
Interest bearing 186,591 171,780
------- -------
Total deposits 224,810 206,139
Accrued interest payable 662 549
Short-term borrowings 4,225 9,675
Other liabilities 1,285 4,388
------- -------
Total liabilities 230,982 220,751
STOCKHOLDERS' EQUITY
Common stock (par value $1); authorized:
25,000,000 shares; issued:
2000 - 2,500,350 shares;
1999 - 496,770 shares 2,501 497
Surplus 9,829 11,420
Retained earnings 13,521 10,473
Accumulated other comprehensive (loss) (591) (952)
Total stockholders' equity 25,260 21,438
-------- --------
Total liabilities and stockholders' equity $256,242 $242,189
</TABLE>
3
<PAGE>
Condensed Consolidated Statements of Income
(Dollars in thousands, except per share amounts)
<TABLE>
THREE MONTHS ENDED NINE MONTHS ENDED
(Unaudited) SEPTEMBER 30, SEPTEMBER 30,
2000 1999 2000 1999
INTEREST INCOME
<S> <C> <C> <C> <C>
Loans $4,202 $3,509 $12,187 $10,349
Securities held to
maturity-taxexempt 24 74 74 81
Securities available for sale:
Taxable 682 792 2,225 2,188
Tax-exempt 207 107 507 463
Deposits with banks
and federal funds sold 18 124 88 475
----- ----- ------ ------
Total interest income 5,133 4,606 15,081 13,556
INTEREST EXPENSE
Deposits 2,074 1,687 5,772 4,981
Other borrowings 150 56 463 152
----- ----- ----- -----
Total interest expense 2,224 1,743 6,235 5,133
NET INTEREST INCOME 2,909 2,863 8,846 8,423
Provision for credit losses 98 15 203 15
----- ----- ----- -----
Net interest income after
provision for credit losses 2,811 2,848 8,643 8,408
NON-INTEREST INCOME
Service charges 181 177 557 563
Mortgage loan origination fees 0 4 36
Gain on sale of foreclosed
real estate 0 0 31 0
Other operating income 123 126 376 352
--- --- --- ---
Total non-interest income 304 307 965 951
NON-INTEREST EXPENSE
Salaries and employee benefits 952 950 2,915 2,862
Occupancy and equipment 241 257 736 760
Other 530 471 1,556 1,472
--- --- ----- -----
Total non-interest expense 1,723 1,678 5,207 5,094
Income before income taxes 1,392 1,477 4,523 4,265
Provision for income taxes 444 488 1,353 1,336
----- ----- ------ ------
NET INCOME $948 $989 $3,048 $2,929
Earnings per common share:
Basic $.38 $.40(1) $ 1.22 $ 1.20(1)
(1)
Diluted .38 .40(1) 1.21 1.18(1)
Average shares outstanding:
Basic 2,500,350 2,444,845(1) 2,489,390 2,444,845(1)
Diluted 2,521,684 2,492,858(1) 2,514,268 2,491,664(1)
</TABLE>
(1)Restated to reflect the 5-for-1 stock split effective in July 2000.
4
<PAGE>
Condensed Consolidated Statements of Cash Flows
Nine months ended September 30, 2000 and 1999
(Dollars in thousands)
<TABLE>
(Unaudited) 2000 1999
OPERATING ACTIVITIES
<S> <C> <C>
Net income $3,048 $2,929
Adjustments to reconcile net income
to net cash
provided by operating activities:
Provision for credit losses 203 15
Depreciation and amortization 331 392
Stock dividends received (164) (181)
Gain on sales of securities ---- (10)
Gain on sale of foreclosed real estate (31) ----
Increase in accrued interest receivable (320) (117)
Increase in accrued interest payable 113 48
Other 15 (304)
---- ----
Net cash provided by operating activities 3,195 2,772
INVESTING ACTIVITIES
Net (increase) decrease in federal funds (645) 8,615
(Increase) decrease in interest bearing
deposits with banks (1,450) (1,872)
Purchase of securities held to maturity --- (198)
Proceeds from maturities of investments
held to maturity 137 331
Purchases of securities available for sale (1,850) (38,796)
Proceeds from maturities of securities
available for sale 8,614 25,389
Net increase in loans (22,774) (2,451)
Additions to premises and equipment (509) (266)
Proceeds from sales of foreclosed real estate 182 28
---- ----
Net cash used in investing activities (18,708) (7,784)
FINANCING ACTIVITIES
Net increase(decrease)in deposits 18,671 5,661
Net increase(decrease)in
short-term borrowings (5,450) 1,389
Payment of dividends (3,105) (2,379)
------ ------
Net cash provided by financing activities 10,529 4,671
Net decrease in cash and due from banks (4,984) (341)
CASH AND DUE FROM BANKS
Beginning of period 13,080 8,634
End of period $8,096 $8,293
</TABLE>
5
<PAGE>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
<TABLE>
Cash payments for :
<S> <C> <C>
Interest $6,122 $ 5,085
Income Taxes 1,320 1,301
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITIES
Unrealized gains(losses)on securities
available for sale, net of tax $ 361 $(1,024)
Foreclosed real estate acquired in
settlement of loans --- 30
Stock issued in five-for-one stock split 1,988 ----
Stock issued for land purchase 413 ----
</TABLE>
6
<PAGE>
Condensed Consolidated Statements of Shareholders' Equity
Nine months ended September 30, 2000 and 1999
(Dollars in thousands) (Unaudited)
<TABLE>
ACCUMULATED
OTHER
COMPREHENSIVE
COMMON RETAINED INCOME
STOCK SURPLUS EARNINGS (LOSS) TOTAL
<S> <C> <C> <C> <C> <C>
Balance December 31, 1998 $ 489 $10,972 $ 9,656 $ 368 $21,485
Other comprehensive income:
Net income 2,929 2,929
Change in unrealized gain
on securities available
for sale, net (1,024) (1,024)
Comprehensive income 1,905
----- ------ ------ ------ ------
Balance September 30, 1999 $ 489 $10,972 $12,585 $ (656) $23,390
Balance December 31, 1999 $ 497 $11,420 $10,473 $ (952) $21,438
Other comprehensive income:
Net income 3,048 3,048
Change in unrealized loss
on securities available
for sale, net 361 361
Comprehensive income 3,409
Five-for-one stock split 1,988 (1,988)
Issuance of common stock 16 397 413
----- ----- ------ ----- -------
Balance September 30, 2000 $2,501 $ 9,829 $13,521 $ (591) $25,260
</TABLE>
7
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. Basis of Presentation
---------------------------
The accompanying unaudited condensed consolidated financial statements have been
prepared by Pacific Financial Corporation ("Pacific" or "Company") in accordance
with generally accepted accounting principles for interim financial information
and with instructions to Form 10Q. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the nine months ended
September 30, 2000, are not necessarily indicative of the results anticipated
for the year ending December 31, 2000.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting periods.
Actual results could differ from those estimates.
All dollar amounts in tables, except per share information, are stated in
thousands.
2. Equity
------------
In April 2000, the Board of Directors approved a five-for-one common stock
split, payable July 15, 2000 to shareholders of record on June 15, 2000. In
addition, the number of authorized shares of common stock were increased from
5,000,000 shares to 25,000,000 shares. Common stock and surplus as at September
30, 2000 have been adjusted to reflect the five-for-one common stock split. In
addition, all prior period per share information and the 1999 average number of
shares outstanding shown in this report have been retroactively adjusted to show
the effect of the stock split.
3. Investment Securities
---------------------------
Investment securities consist principally of short and intermediate term debt
instruments issued by the U.S. Treasury, other U.S. government agencies, State
and local government units, and other corporations. The Company is a stockholder
in the Federal Home Loan Bank of Seattle (FHLB).
<TABLE>
SECURITIES HELD TO MATURITY AMORTIZED UNREALIZED FAIR
COST GAINS VALUE
(LOSSES)
September 30, 2000
<S> <C> <C> <C>
State and Municipal Securities $1,457 -0- $1,457
----- ----- -----
TOTAL $1,457 -0- $1,457
</TABLE>
8
<PAGE>
<TABLE>
SECURITIES AVAILABLE FOR SALE AMORTIZED UNREALIZED FAIR
COST GAINS VALUE
(LOSSES)
September 30, 2000
<S> <C> <C> <C>
U.S. Treasury Securities $ 503 $(5) $498
U.S. Government Securities 29,565 (610) 28,955
State and Municipal Securities 12,061 (20) 12,041
Corporate Securities 14,821 (263) 14,558
Equity Securities 3,460 -0- 3,460
------ ------ ------
TOTAL $60,410 $(898) $59,512
</TABLE>
4. Allowance for Credit Losses
---------------------------------
<TABLE>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Balance at beginning of period $2,031 $1,930 $1,930 $1,864
Provision for possible credit losses 98 15 203 15
Charge-offs 1 14 11 30
Recoveries 16 --- 22 82
Net recoveries (charge-offs) 15 (14) 11 52
---- ---- ---- ----
Balance at end of period $2,144 $1,931 $2,144 $1,931
</TABLE>
5. Computation of Basic Earnings per Share:
----------------------------------------------
<TABLE>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2000 1999(1) 2000 1999(1)
<S> <C> <C> <C> <C>
Net Income $948,000 $989,000 $3,048,000 $2,929,000
Shares Outstanding,
Beginning of Period 2,500,350 2,444,845 2,483,850 2,444,845
Shares Issued During Period
Times Average Time Outstanding - - 5,540 -
Average Shares Outstanding 2,500,350 2,444,845 2,489,390 2,444,845
Basic Earnings Per Share $ .38 $ .40 $ 1.22 $ 1.20
</TABLE>
(1) Restated to reflect the five-for-one stock split effective in July 2000.
9
<PAGE>
6. Computation of Diluted Earnings Per Share:
------------------------------------------------
<TABLE>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2000 1999(1) 2000 1999(1)
<S> <C> <C> <C> <C>
Net Income $948,000 $989,000 $3,048,000 $2,929,000
Options Outstanding 77,300 93,550 77,300 93,550
Proceeds Were Options
Exercised $1,390,750 $1,229,500 $1,390,750 $1,229,500
Average Share Price During
Period $ 24.85 $ 27.00 $ 26.53 $ 26.31
Proceeds Divided By Average
Share Price 55,966 45,537 52,422 46,731
Incremental Shares 21,334 48,013 24,878 46,819
Average Shares Outstanding 2,500,350 2,444,845 2,489,390 2,444,845
Incremental Shares
Plus Outstanding Shares 2,521,684 2,492,858 2,514,268 2,491,664
Diluted Earnings Per Share $ .38 $ .40 $ 1.21 $ 1.18
</TABLE>
(1) Restated to reflect the five-for-one stock split effective in July 2000.
10
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
A Warning About Forward-Looking Information
We have made forward-looking statements in this document that are subject
to risks and uncertainties. These statements are based on the beliefs and
assumptions of our management, and on information currently available to them.
Forward-looking statements include the information concerning our possible or
assumed future results of operations set forth under "Management's Discussion
and Analysis of Financial Condition And Results of Operations" and statements
preceded by, followed by or that include the words "believes," "expects,"
"anticipates," "intends," "plans," "estimates" or similar expressions.
Any forward-looking statements in this document are subject to risks
relating to, among other things, the following:
1. effective December 15, 1999 Harbor Bancorp, Inc. completed the
merger of equals with Pacific Financial Corporation; anticipated cost
savings from the merger may not be fully realized or realized within the
expected time frame (the transaction was treated as a pooling for
accounting purposes, and accordingly, all prior results of operations have
been restated);
2. competitive pressures among depository and other financial
institutions may increase significantly;
3. changes in the interest rate environment may reduce
margins;
4. general economic or business conditions, either nationally or in
the state or regions in which we do business, may be less favorable than
expected, resulting in, among other things, a deterioration in credit
quality or a reduced demand for credit;
5. legislative or regulatory changes may adversely affect the
businesses in which we are engaged; and
6. adverse changes may occur in the securities markets.
Our management believes the forward-looking statements are reasonable;
however, you should not place undue reliance on them. Forward-looking statements
are not guarantees of performance. They involve risks, uncertainties and
assumptions. The future results and shareholder values of the combined
corporation following completion of the merger may differ materially from those
expressed or implied in these forward-looking statements. Many of the factors
that will determine these results and values are beyond our ability to control
or predict.
11
<PAGE>
Net income. For the nine months ended September 30, 2000, Pacific's net income
-----------
was $3,048,000 compared to $2,929,000 for the same period in 1999. The principal
contributing factor to the increase was a $423,000 increase in net interest
income, offset by a $188,000 increase in the provision for credit losses, and a
$113,000 increase in non-interest expense. Net income for the three months ended
September 30, 2000 was $948,000, compared to $989,000 for the same period in
1999. The decrease was attributable primarily to a $46,000 increase in net
interest income, a $45,000 increase in non-interest expense, and a $83,000
increase in the provision for credit losses.
Net interest income. Net interest income for the three months ended September
--------------------
30, 2000 increased $46,000 compared to the same period in 1999. Net interest
income for the nine months ended September 30, 2000 increased $423,000 over the
comparable period in 1999.
Interest income for the three months ended September 30, 2000 increased $527,000
or 11.4% compared to the comparable period in 1999, and for the nine months
ended September 30, 2000 increased $1,525,000 or 11.3% over the same period in
1999. Increased lending volume and increases in the prime rate of interest were
the primary reasons for the positive variance in interest income. Average loans
outstanding for the nine months ended September 30, 2000 were $166,255,000, or
11.6% higher than for the comparable period in 1999.
Interest expense for the three months ended September 30, 2000 increased
$481,000 or 27.6% compared to the same period in 1999, and increased $1,102,000
or 21.5% for the nine months ended September 30, 2000 over the comparable period
in 1999. This is due to the increased interest rate environment during the 2000
periods and an increase of interest bearing liabilities for the periods ended
September 30, 2000 compared to the comparable periods in 1999. Average interest
bearing deposits for the nine months ended September 30, 2000 were $177,789,000,
unchanged from the comparable period in 1999. Average short term borrowings for
the nine months ended September 30, 2000 were $7,451,000, $6,268,000 higher than
for the comparable period in 1999.
Provision and allowance for credit losses. During the three months ended
-----------------------------------------------
September 30, 2000, $98,000 was provided for credit losses, compared to $15,000
for the same period in 1999. For the nine months ended September 30, 2000,
$203,000 was provided for possible credit losses compared to $15,000 for the
comparable period in 1999. For the nine months ended September 30, 2000, net
recoveries were $11,000 compared to net recoveries of $65,000 during the same
period in 1999.
At September 30, 2000, the allowance for credit losses stood at $2,144,000
compared to $1,930,000 at December 31, 1999, and $1,931,000 at September 30,
1999. The ratio of the allowance to total loans outstanding was 1.22%, 1.26% and
1.29% at September 30, 2000, December 31, 1999, and September 30, 1999,
respectively. Management considers the allowance for credit losses to be
adequate for the periods indicated.
12
<PAGE>
Non-performing assets and other real estate owned. Non-performing assets totaled
--------------------------------------------------
$3,394,000 at September 30, 2000. This represents 1.32% of total assets compared
to $492,000 or .20% at December 31, 1999, and $1,274,000 or .52% at September
30, 1999. Non-accrual loans at September 30, 2000 totaled $1,705,000.
Non-accrual loans at September 30, 2000 consist primarily of one agricultural
loan with a balance of $1,357,000. Management is in the process of assessing the
repayment possibilities and collateral position on this loan. Any amount which
is determined to be uncollectible when this process is completed will be charged
to the allowance for credit losses.
Loans accruing which are past due 90 days or more totaled $1,663,000 at
September 30, 2000, of which $1,029,000 is fully guaranteed by the U.S.
Government; management believes losses, if any, associated with these loans will
be minimal.
<TABLE>
ANALYSIS OF
NONPERFORMING ASSETS SEPTEMBER 30 DECEMBER 31 SEPTEMBER 30
(Dollars in thousands) 2000 1999 1999
Accruing loans past due 90 days
<S> <C> <C> <C>
or more $1,663 $140 $ 377
Non-accrual loans 1,705 175 764
Foreclosed loans 26 177 133
TOTAL $3,394 $492 $1,274
</TABLE>
Non-interest income and expenses. Non-interest income for the three month period
---------------------------------
ended September 30, 2000 decreased $3,000 compared to the same period in 1999,
and increased $14,000 for the nine months ended September 30, 2000 compared to
the same period in 1999.
Non-interest expense for the three and nine month periods ended September 30,
2000 increased $45,000 or 2.6%, and $113,000 or 2.2% respectively, compared to
the same periods in 1999. For the 2000 three-month period, salaries and benefits
increased $2,000, occupancy expense decreased $16,000, and other expenses
increased $59,000 compared to the same period in 1999. The primary reasons for
the increase in non-interest expense for the three and nine months ended
September 30, 2000 compared to the same periods in 1999, were an increase in
salaries and benefits of $2,000 and $53,000 due to normal merit and inflationary
increases, and an increase of $59,000 and $84,000 in other expenses relating to
increased general and administrative costs, resulting primarily from the
December 1999 merger.
Income taxes. The federal income tax provision for the nine months ended
--------------
September 30, 2000 was $1,353,000, an increase of $17,000 compared to the same
period in 1999. The effective tax rate for the 2000 period is 29.9% compared to
31.3% in 1999.
13
<PAGE>
Financial Condition. Total assets were $256,242,000 at September 30, 2000, an
---------------------
increase of $14,053,000 or 5.8% over year-end 1999. Loans totaled $175,449,000
at September 30, 2000, an increase of $22,785,000 or 14.9% over year-end 1999.
Total deposits were $224,810,000 at September 30, 2000, an increase of
$18,671,000 or 9.1% compared to the balance at December 31, 1999.
Loans. Loan detail by category at September 30, 2000 and December 31, 1999
------
was as follows:
(Dollars in thousands)
<TABLE>
September 30, December 31,
2000 1999
<S> <C> <C>
Commercial and industrial $ 63,229 $ 54,150
Agricultural 1,981 2,101
Real estate mortgage 98,806 88,852
Real estate construction 7,041 3,325
Installment 3,533 3,379
Credit cards and other 859 857
Total Loans 175,449 152,664
Allowance for credit losses (2,144) (1,930)
Net Loans $173,305 $150,734
</TABLE>
Liquidity. Adequate liquidity is available to accommodate fluctuations in
----------
deposit levels, funds operations, and provide for customer credit needs and meet
obligations and commitments on a timely basis. The Company has no brokered
deposits. The Company has credit availability from the Federal Home Loan Bank of
Seattle of $51 million, of which $4,225,000 was used at September 30, 2000.
Stockholders' equity. Total stockholders' equity was $25,260,000 at September
----------------------
30, 2000, an increase of $3,822,000 or 17.8% compared to December 31, 1999. Book
value per share increased to $10.10 at September 30, 2000 compared to $8.63 at
December 31, 1999. Book value is calculated by dividing total equity capital by
total shares outstanding. Book value is impacted by net income less dividends
and changes in the fair value of the Bank's available for sale investment
portfolio.
On April 17, 2000, the Board of Directors declared a five-for-one stock split of
Pacific's outstanding common stock. The split was implemented as a stock
dividend, payable July 15, 2000, at the rate of four new shares of common stock
for each share held of record on June 15, 2000.
Item 3. Quantitative and qualitative disclosures about market risk. Interest
----------------------------------------------------------------------
rate, credit, and operations risks are the most significant market risks which
affect the Company's performance. The Company relies on loan review, prudent
loan underwriting standards and an adequate allowance for credit losses to
mitigate credit risk.
An asset/liability management simulation model is used to measure interest rate
risk. The model produces regulatory oriented measurements of interest rate risk
exposure. The model quantifies interest rate risk through simulating forecasted
net interest income over a 12 month time period under
14
<PAGE>
various interest rate scenarios, as well as monitoring the change in the
present value of equity under the same rate scenarios. The present value
of equity is defined as the difference between the market value of assets
less liabilities. By measuring the change in the present value of equity under
various rate scenarios, management is able to identify interest rate risk
that may not be evident in changes in forecasted net interest income.
The Company is currently asset sensitive, meaning that interest earning assets
mature or reprice more quickly than interest-bearing liabilities in a given
period. Therefore, a significant increase in market rates of interest could
improve net interest income. Conversely, a decreasing rate environment may
adversely affect net interest income.
It should be noted that the simulation model does not take into account future
management actions that could be undertaken should actual market rates change
during the year. An important point should be kept in mind; the model simulation
results are not exact measures of the Company's actual interest rate risk. They
are rather only indicators of rate risk exposure, based on assumptions produced
in a simplified modeling environment designed to heighten sensitivity to changes
in interest rates. The rate risk exposure results of the simulation model
typically are greater than the Company's actual rate risk. That is due to the
conservative modeling environment, which generally depicts a worst-case
situation. Management has assessed the results of the simulation reports as of
September 30, 2000, and believes that there has been no material change since
December 31, 1999.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
27 Financial Data Schedule for the nine-month period ended
September 30, 2000.
99 Description of common stock of Pacific Financial
Corporation.
15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PACIFIC FINANCIAL CORPORATION
DATED: November 13, 2000 By: /s/ Dennis E. Long
Dennis E. Long
President
By: /s/ John Van Dijk
John Van Dijk
Treasurer
16
